Europe 2020

Within the overall Europe 2020 strategy, there will be difficult tensions to resolve between social and economic aims, as well as between qualitative progress and quantitative targets.

The impact of Europe 2020 on employment and the labour market will be pivotal, because it is the policy domain that straddles the boundary between the EU as an economic union and its wider social ambitions. Discuss.

The 2020 strategy is designed to promote “smart, sustainable and inclusive growth” with 7 key targets to; increase total investment in R+D to 3% of GDP; reduce greenhouse gas emissions by at least 20% compared to 1990 levels; increase the share of renewable energy to 20%; and move towards a 20% increase in energy efficiency; reduce school drop-out rates to less than 10% and increase the share of the population having completed tertiary education to at least 40%; lift 20 million people out of the risk of poverty and social exclusion; and raise the employment rate to 75% amongst 20-64 year olds. The strategy replaces the Lisbon plan and comes in the wake of the 2008 global recession – the European Union’s toughest economic challenge to date. Member states will have to work doubly hard to meet some of these targets whilst trying to overcome the pernicious effects of the downturn.

These flagship proposals were intended to be few in number so that policymakers could focus on achieving these and to ensure that they weren’t diluted. Having a relatively small number of proposals also makes it easier for the public and press to get involved: the targets aren’t particularly complex in their nature and the Commission highlights the ease of availability of data on these targets. This means that, theoretically, the public and press should be able to easily lobby their respective governments to ensure that these targets are met.

Whilst appearing to have a social nature, the flagship proposals all have economic goals embedded within them. Increasing research and development investment should increase aggregate supply in the future, and allow European firms to have a competitive edge over their global rivals. The proposals which target environmental concern will not only create a sustainable future, but can lead to growth as a lot of new infrastructure is needed to develop this sector which can lead to job prospects and increases in knowledge. Furthermore, it may lead to lower energy prices in the long term as we would expect the price of oil, and other non-renewables, to rise as reserves eventually dwindle.

Increasing educational attainment again focuses on the supply side of the economy and should lead to a better educated workforce, which might encourage more firms to move or set-up within Europe. Additionally, the targets within this are measuring outputs and not inputs, this means that a government can’t meet the target just by throwing money at the project but has to plan the most effective ways to combat this problem. A benefit of this is that a lot of European nations are reeling from the Sovereign Debt crisis, and have committed themselves to reducing their budget deficits, often through fiscal expenditure reductions. This means that they have little money to attempt to achieve these targets with; if this particular target was to increase spending on education to X% then this may be unachievable in the current climate. By instead focusing on outputs this target could be achieved since it doesn’t in itself entail a massive expenditure commitment. Some of the other targets may suffer from focusing on inputs – such as the R+D commitment – as opposed to inputs. Along with funding problems, focusing on inputs doesn’t guarantee an increase in outputs. Just because R+D spending reaches 3% of GDP (assuming it is achieved) it doesn’t mean that investable projects and ideas will also increase by 3%. If the money simply goes to increasing the wages of middle managers then there may be no benefit from the increased spending.

Lifting people out of poverty will not only be a socially inclusive policy, which will increase the well-being of citizens and make them more active members of society, but has an economic backdrop. Demographically, Europe is an ageing population – the median age is expected to reach 52.3 by 2050 (the European Commission) – and so it needs more people of working age to support the burgeoning size of the elderly population. By reducing poverty and reaching out to people disillusioned by society and the labour market, there is a potential that the labour supply can be increased which may reduce fiscal pressures elsewhere.

The target of raising the employment rate to 75% is again intended to mitigate the effects of an ageing population by encouraging the remaining population to work, this target might be achieved by reducing childcare costs so that more women can work. It is an ambitious target with current forecasts estimating the rate to only reach 72% by 2020, perhaps hindered by the economic downturn which causes cognitive dissonance in some, resulting in them exiting the labour force. Furthermore, hysteresis effects, such as a depreciated capital stock, reduced skills in the workforce and signalling problems between employers and potential employees, from this will inhibit the supply-side for a long time to come. 12 million net new jobs would need to be created to achieve this target (Begg) and the Lisbon treaty; to get 70% of the 16-64yr old population working wasn’t achieved. Albeit, the age range of 16-20 witnesses much higher unemployment.

In short, the main aims of Europe 2020 are to increase the competitiveness of the EU nations – “the EU is blighted by a productivity issue with output reaching 90% of US per capita GDP in 1980 which has now fallen to 70%” (European Commission) – and to mitigate the effects of an ageing population and the issues arising from the 2008 downturn. Whilst on the face of it these policies appear economic, digging deeper we find that they can only be achieved by greater integration of Europe – one of the EU’s main social ambitions. To achieve many of the policies greater pooling of information, resources and ultimately labour will be needed which could cause political tension between governments. For example, greater immigration from outside the EU is necessary in order to counter the ageing population with the Commission saying “net migration is and will be necessary because of demographic developments”. Furthermore, greater internal migration may be necessary to offset demographic truths, such as Western nations having the bulk of the elderly population with the Eastern nations having a much younger population. This policy may face political opposition within member states, particularly in the West of Europe, where vocal opposition –rightly or wrongly – is made to greater immigration, for fears of pressure on infrastructure, jobs and social cohesion.

Similarly, the Commission’s focus on green policies may lead to economic growth, and a sustainable long term future, but may face opposition from lobbyists who don’t want to see higher energy prices (in the short run), from nuclear energy opponents where a large amount of new renewable energy will derive, and from those who believe that the environment should be of secondary concern to the welfare and economic status of the population.

This may lead some to oppose the meeting of these 2020 targets despite the necessary nature of securing long-term economic growth. If there is pressure on member states to improve the economic situation in the short-term then this may take up scarce money and resources which won’t be available to deal with the long term issues, and thus the targets will be missed. More fundamentally, opposition may arise to prevent more sovereign power being given to the European Union and the recent rise of populist parties, such as UKIP, the National Front and Syriza, means politicians are being forced to stand-up to Europe and, at least, pretend to be halting the increasing trend towards greater social unity in the sense of a United States of Europe.

There is also little room for the Commission to fund these targets itself, Sapir proposed in 2003 that the EU budget be modernised and redirected towards focusing on economic growth and prosperity, as opposed to simply funding agriculture. The Common Agricultural Policy received 48% of the EU funding between 2007-2013 whereas Sapir proposed that it be set at 15% which would lead more money to be spent on growth and cohesion. The 2014-2020 European budget agreed 15% of funds to be spent on growth, 40% on cohesion and 45% on agriculture. The reason for failing to agree to Sapir’s proposals is that each member state can effectively veto the budget proposal, this means that nations which are net recipients of agricultural funding will refuse to change the budget as it means they will receive less income. As a result it means that the Commission, has very little money to spend on achieving its 2020 goals, which would not only improve the European situation and hopefully increase the competitive ability of European firms against the growing competitive ability of foreign nations, but may increase confidence and social belief in Europe as a political force. If citizens saw that the EU was trying to improve their lot, and wanted to work towards increasing the number of people in work, reducing poverty and improving the environment then they may have greater faith in the organisation. Instead they see half of its limited budget – only 1% of EU GDP – being sent to basically subsidise French farmers. Not only does this inhibit growth, make it more difficult to achieve the listed targets and increase public support but it makes it easier for member states to refuse to meet their own targets for Europe 2020 and blame it on a lack of overall support.

Despite the main targets, being relatively few, and easy to understand and monitor, they are just targets – words. Some would argue that without action being taken to achieve these then there will be no impetus for member states to make a push either. Democratically elected sovereign governments are in power for around 5 years and generally focus on ensuring economic growth in those 5 years, particularly towards election time so that they get re-elected. They have little incentive to push for long-term growth as this doesn’t often equate into votes for them. If the EU doesn’t make it easy for governments to reach these targets then they will find little political will in themselves to make it a reality. Moreover, the Commission has refused to ‘name and shame’ countries which don’t meet their individual targets for fear of upsetting national governments. Again this gives little incentive for nations to reach the targets, and so labour market improvements may not occur at the detriment of Europe as a whole.

In conclusion the European 2020 strategy is well-intentioned and is correct to think about the long-term situation for the environment, the labour market and the social welfare of citizens; but it is flawed in that it has little support. Governments have little incentive to meet their targets, as there is no effective punishment, and they are also constrained fiscally and have a political incentive to focus on the short-term situation as opposed to the long term situation. To an extent the strategy aims to increase migration within the European Union and increase unification, something which a growing political section of sovereign nations oppose and will fight against. Whilst the targets are easily laid out and measured, there is little funding from the Commission due to the rejection of the Sapir report, and as such gives little impetus to the goals. For some they will just seem like words and it may be more appropriate for the Commission to focus on actions it can undertake within its remit, for example focusing on establishing a single patent system within Europe to reduce firm costs.


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